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Unfortunately, when it comes to investing, often fundamentals are ignored and the emotional mind takes control. Fear is one of the most common motives that we live with today and the most common fear in the investment world is losing your money.
Most of us are aggressive about our hard-earned money and need to safeguard against losing any of it by placing our trust and funds in the hands of a capable investment advisor.
In this ever-changing, modern world, we constantly try to master the art of investing. The way investing has been revolutionised, we tend to be overwhelmed by the availability of the information at our fingertips, yet we just cannot seem to get enough of it! We absorb it from the press, television, radio reports, discussion panels and the Internet.
The choice of investment vehicles and strategies is so vast that no matter how unique a financial need may be, it can be fulfilled and accommodated. In such a diverse industry we all have a common interest: Money and the process of multiplying it. We tend to invest in anything and everything to create wealth.
An important part of investing is to be assisted in making calculated decisions, have an in-depth understanding of our portfolios and identify how to realise our financial goals. Without some form of strategy, this exercise becomes impossible.
In constructing a portfolio, we must identify the difference between value and growth assets, coupled with the inherent risk. Then ask: "How much am I willing to risk in order to gain financially?"
Part of determining investment risk lies in the time horizon and we must have a clear indication of what our short-, medium- and long-term needs are.
Another area of risk analysis lies in the vehicles utilised. In an ever-changing, volatile market, the need for diversification is vital. We must diversify over asset classes. We need strategies that we are comfortable with and we can understand.
Being conscious of cost, we strive to be shrewd buyers. We buy cheap and look for value in our material purchases. We tend to lose sight of value for money because we are driven by market hype, which leads us to "buy expensive".
One of the vital aspects of investor psychology lies in servicing. Advisors must understand investors' wants and needs in order to consistently monitor a portfolio.
Communication is of the utmost importance and it is imperative that one discusses a portfolio with one's financial advisor to assess any change in circumstances.
A financial advisor needs to have the necessary knowledge, be transparent and understand the psychology behind clients investment decisions.
l The writer is a director of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail firstname.lastname@example.org